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Trump's tax plan: massive cuts for the 1% will usher 'era of dynastic wealth'

The Guardian  /  November 23, 2016

More than eight million low-income and single-parent families will face sharp tax increases under Donald Trump exacerbating income inequality

President Donald Trump is set to give America’s richest 1% an average annual tax cut of $214,000 when he takes office, while more than eight million families with children are expected to suffer financially under his proposed tax plan.

On the eve of the election, Trump promised to “massively cut taxes for the middle class, the forgotten people, the forgotten men and women of this country, who built our country”.

But independent expert analyses of Trump’s tax plan show that America’s millionaire and billionaire class will win big at the expense of struggling low- and middle-income people, who turned out in large numbers to help the real estate billionaire win the election.

Experts warn that Trump’s tax plan will exacerbate America’s already chronic income inequality and herald in a “new era of dynastic wealth”.

 “The Trump tax plan is heavily, heavily, skewed to the most wealthy, who will receive huge savings,” said Lily Batchelder, a law professor and tax expert at New York University. “At the same time, millions of low-income families – particularly single-parent households – will face an increase.”

Batchelder, who wrote an academic paper on Trump’s tax plan published by the Urban-Brookings Tax Policy Center, said that the president-elect’s plan “significantly raises taxes” for at least 8.5 million families, with “especially large tax increases for working single parents”. More than 26 million individuals live in those families.

Minority families are set to suffer disproportionately from the tax increases, according to Batchelder. With 32% of African American families facing a tax increase compared with 19% of whites, this is mostly due to African American families being more likely to share the burden of childcare within the family and hence not benefit as much from Trump childcare credits. Batchelder said the effective tax increase for many millions of families would run into the thousands.

While the poor will face tax increases, the Tax Policy Center research said the rich would received big tax cuts that get even bigger as you work up the income scale. The top 20% of earners would receive an average annual tax cut of $16,660 compared with an overall average cut of $2,940.

The richest 1% will collect 47% of all the tax cuts – an average saving of $214,000.

The 0.1% – the 117,000 households with incomes of more than $3.7 million – would receive an average 2017 tax cut of $1.3 million, a nearly 19% drop in tax they were due to pay in 2016. The tax savings of the super-rich will increase further in future, with the 0.1%’s estimated 2025 tax bill to fall by $1.5 million.

It is a stark contrast to Hillary Clinton’s tax plan, which would have seen taxes rises for the super-wealthy. Under her plan, the top 1% would pay an extra $163,000 a year more on average, and would have made up 93% of all new tax revenue by 2025.

“Listening to Trump’s rhetoric, most Americans probably don’t realise at all the impact of Trump’s tax plan,” Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy (ITEP) said. “Any way you slice it, the very best-off Americans will be the biggest beneficiaries.

“If it looks bad now for middle-income families, those who turned out to vote for him, it’s only likely to get worse [with Trump as president]. It is very likely that they will end up poorer still. The most likely victims are middle- and low-income families.”

Gardner said that under Trump, America will become even more divided between the rich and poor. “America is already very unequal, and his proposals would make income inequality a lot worse,” Gardner said. “This is obviously quite worrisome. If he rode to victory on a middle-income wave of support, those middle Americans will be very disappointed.”

The inequality problem will be exacerbated by Trump’s plan to scrap inheritance tax – which he refers to as “the death tax”. The 40% inheritance tax is currently only charged on personal estate worth more than $5.45 million and joint estates of $10.9 million – sums so large that it only affects less than two in 1,000 Americans.

Trump has proposed repealing the tax entirely. While Clinton, pushed by Bernie Sanders’ strong stance on the issue, had suggested lowering the threshold to $3.5 million and increasing the rate to 65% for the super-wealthy.

“It’s hard to think of a tax change that will have a more detrimental effect on inequality,” Garnder said. “There is no question that this will lead to a perpetual income elite – hardly the thing that Trump voters would have wanted. This will lead to a new era of dynastic wealth.”

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Trump plans biggest tax changes since Reagan, says Mnuchin

The Financial Times  /  November 30, 2016

Donald Trump’s incoming administration is planning the “largest tax change” since the Reagan era, according to the former Goldman banker nominated by the president-elect to be the next Treasury secretary.

Steven Mnuchin, who played a central role in the property developer’s election campaign, confirmed plans to cut the US federal corporate tax rate from 35 percent to 15 percent.

“By cutting corporate taxes, we’re going to create huge economic growth and we’ll have huge personal income,” says Mnuchin. He also said that he believed the US economy could grow at a sustained rate of 3 to 4 per cent.

He said any reduction in upper income taxes would be offset by fewer tax deductions. In this way, “there will be no absolute tax cut for the upper class.”

Mnuchin, 53, confirmed in the interview he had been picked by Trump as Treasury secretary along with billionaire Wilbur Ross as commerce secretary.

Mnuchin left Goldman 15 years ago to produce films in Hollywood. He backed the president-elect during the Republican primary and then served as campaign finance director.

On the question of Federal Reserve chair Janet Yellen, who was sharply criticised by Trump during the election campaign, Mnuchin refused to say whether she should finish her term. He said, however, that “she’s done a good job”.

Mnuchin added that filling two vacancies on the Fed’s policy-setting board would be a high priority.

He said interest rates are likely to stay low for a few years, but the recent rise in bond yields made sense.

He added: “We’ll look at potentially extending maturity of the debt because eventually we’re going to have higher interest rates.”

Wilbur Ross, meanwhile, weighed in on the debate over Trump’s controversial trade policies, saying that “protectionism is a pejorative term, it’s not really meaningful”.

“There’s trade, there’s sensible trade and there’s dumb trade. We’ve been doing a lot of dumb trade,” he said.

He also took a hit at the Trans-Pacific Partnership, a pact that is central to President Barack Obama’s “pivot to Asia” but been lambasted by Mr Trump as a bad deal.

“The trouble with regional trade agreements is you get picked apart by the first country, then you negotiate with the second country and get picked apart, and then go with the third one and get picked apart again,” Ross said.

 

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On 11/24/2016 at 0:47 PM, davehummell said:

I am all for doing away with the death tax. I  was an executor on two estates and I find it odd the person paid taxes on everything in the estate one way or another and when the person dies the government want's more free money to piss away.   I just can't afford to kick the bucket I don't have enough for every one with their hand out. If my ship ever comes in I plan on donating it all to the home of wayward strippers as the girls  gave so much pleasure to so many. Dave

I agree Dave, I will be donating my wealth this weekend as well. One dollar at a time!

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On 11/24/2016 at 6:05 PM, Underdog said:

I might be simple-minded, but I just don't see " income inequality" the way the media reports it. When the so-called 1% gets a tax break, usually the money gets reinvested, or businesses hire more people. It ends up to be a net gain for society. The bottom half of earners barely pay taxes anyway, and they are made out to be victims. Everybody needs to pay taxes, and a flat percentage or sales tax is the only way it will be fair for everyone.

I'm with you, a flat tax for everyone. 

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The problems we face today exist because the people who work for a living are outnumbered by the people who vote for a living.

The government can only "give" someone what they first take from another.

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49 minutes ago, HeavyGunner said:

I'm with you, a flat tax for everyone. 

V.A.T. should be included so the illegals, gimmies and the groups under the "radar" pay too. Allow the most or all of the V.A.T. to be deducted for those who pay flat taxes

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"OPERTUNITY IS MISSED BY MOST PEOPLE BECAUSE IT IS DRESSED IN OVERALLS AND LOOKS LIKE WORK"  Thomas Edison

 “Life’s journey is not to arrive at the grave safely, in a well preserved body, but rather to skid in sideways, totally worn out, shouting ‘Holy shit, what a ride!’

P.T.CHESHIRE

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New Trump hires pledge tax and regulation shake-up

The Financial Times  /  November 30, 2016

Mnuchin and Ross vow to stand firm on campaign promises as Democrats decry choices

Donald Trump’s new economic team has vowed to push ahead with his far-reaching policy proposals to slash taxes, loosen bank regulation and shake up US links with China and other trading partners.

The pledges to stand firm on Trump’s bold campaign promises came as the president-elect on Wednesday nominated former Goldman Sachs banker Steven Mnuchin as Treasury secretary and confirmed the private equity mogul Wilbur Ross as his choice for commerce secretary.

Mnuchin told CNBC Americans should expect the “largest tax change since [Ronald] Reagan”.

The two Wall Street insiders, set to be co-heads of the Trump economic team, said Trump’s policies would return the US economy to a sustained annual growth rate of 3-4 per cent while lifting wages and creating more “good jobs”.

Trump’s transition team also nominated Todd Ricketts, co-owner of the Chicago Cubs baseball team, as deputy commerce secretary.

Mnuchin, 53, a hedge fund manager and Hollywood movie producer, will play a central role in transforming tax, Wall Street and the US’s international financial ties for a president who has embraced the private sector and been sceptical of globalism.

Democrats quickly condemned his selection, portraying Mnuchin as a creature of Wall Street who “preyed on” homeowners during the last financial crisis and would not put the interests of ordinary Americans first.

Senator Sherrod Brown, a senior Democrat, said: “This isn’t draining the swamp — it’s stocking it with alligators.”

Mnuchin said on CNBC the Trump administration would create “huge economic growth” by pushing ahead with its plan to reduce the US federal corporate tax rate from 35 per cent to 15 per cent, a goal it will need to negotiate with Congress.

On personal taxation he disputed the findings of analysts who say most of the benefits of Trump’s tax plan would go to the wealthy, saying “there will be no absolute tax cut for the upper class” because lower rates would be offset by caps on the deductions people can claim.

But Kyle Pomerleau of the Tax Foundation, which publishes research on tax policy, said the richest 1 per cent of Americans would still get a net cut. “The Trump administration would need to alter the current tax plan to satisfy the goal of no net tax cut for the top 1 per cent,” he said.

Managing US-China ties will be one of the Treasury secretary’s biggest challenges. While Mnuchin did not drop Trump’s pledge to label China as a currency manipulator in his first 100 days, he made clear that he would want the US Treasury to investigate first.

“If we determine that we need to label them as a currency manipulator that’s something the Treasury would do,” he said.

Under current standards set by a 2015 law the US Treasury has said China does not meet the definition of being a currency manipulator.

Mnuchin would also be the third Treasury secretary after Robert Rubin and Hank Paulson to have worked at Goldman Sachs. He has known Mr Ross, who was interviewed alongside him, for three decades.

On trade, Ross said the president-elect’s threat to impose defensive tariffs on Chinese and Mexican imports would not be a first resort but part of the US’s negotiations as it aimed to boost American exports.

Rejecting the “protectionist” label applied to Trump, he said: “It’s not really something that’s meaningful. There’s trade, there’s sensible trade, and there’s dumb trade. We’ve been doing a lot of dumb trade. And that’s the part that’s going to get fixed.”

Following Trump’s vow to dismantle the Dodd-Frank reforms imposed on Wall Street after the last financial crisis, Mnuchin — who bought a collapsed mortgage lender in 2009 — said his priority would be “to strip back parts of Dodd-Frank that prevent banks from lending”.

He refused to comment on whether Janet Yellen, the Federal Reserve chair, should finish her term after being sharply criticised by Trump during the election campaign. He said, however, that “she’s done a good job”.

While Treasury secretaries usually steer clear of commenting on monetary policy to protect the Fed’s independence, Mnuchin said interest rates would likely stay low for a few years, but added that the recent rise in bond yields made sense.

Mnuchin, who chairs the Dune Capital hedge fund and Dune Entertainment Partners, left Goldman 15 years ago to produce films in Hollywood.

Trump said he was a “world-class financier, banker and businessman” who would play a "key role in developing our plan to build a dynamic, booming economy that will create millions of jobs”.

Mnuchin pushed back at criticism from Democrats that he had taken advantage of homeowners since the financial crisis by buying IndyMac, the collapsed mortgage lender.

He said that the move to scoop up the group “saved a lot of jobs” and that as part of the pact, he “bought the worst mortgage portfolio in the history of time”. He added that “all the loans we had to foreclose on we did not originate”.

Separately, Mnuchin told Fox Business that it made“no sense” for the government to continue owning the mortgage insurers Fannie Mae and Freddie Mac, which Washington bailed out in the 2008 financial crisis. “We’ve got to get Fannie and Freddie out of government ownership,” he said: “In many cases this displaces private lending in the mortgage markets.”

High-profile US investors including John Paulson, Bill Ackman and Richard Perry amassed big stakes in the two companies, and sued over the government’s 2012 “sweep” of their profits. The value of their positions had been dropping for years, until Mr Trump’s election spurred speculation that he would relax the government stranglehold.

Common shares in Fannie and Freddie have more than doubled, with each rising more than 44 per cent on Wednesday, boosting hedge funds locked in the trade: Mr Perry’s Perry Capital said in September it would shut down. But for Mr Paulson and Mr Ackman, whose funds have both dropped in value by more than 15 per cent this year, the move is providing a much-needed fillip.

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Key quotes from Steven Mnuchin from CNBC interview

Defending his company’s role buying IndyMac during the 2007 financial crisis

We bought the worst mortgage portfolio in the history of time.

On his role as a Democrat donor in earlier elections

Like the president-elect I lived in New York and gave money to certain Democrats...I didn’t say I backed them. I gave money to them

On the state of the economy

The problem has been for the last eight years, there’s been no economic growth. What we saw travelling with the president-elect, at all these rallies, is that for the average American worker they’ve gone nowhere. Our job is to make the average American worker have wage increases and have good jobs. That’s the priority of this administration.”

On Janet Yellen

Look, I think she’s done a good job at the Fed. I am not going to comment on whether she should or she shouldn’t (continue).

On China

If we determine that we need to label them as a currency manipulator, that’s something the Treasury would do.

On Dodd/Frank

The number one problem with Dodd/Frank is it’s way too complicated and it cuts back lending. So we want to strip back parts of Dodd/Frank that prevent banks from lending...That will be the number one priority on the regulatory side.

On losing friends in California when he joined the Trump team

This was never a gamble from my perspective. I’ve known the president-elect for over 15 years. I believed in his policies and I thought he would win. But I did this because I believed in it, despite the fact there were a lot of people in California and New York that wanted to stop being friends. They’ve all come back.

.

 

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Reuters  /  November 30, 2016

Republicans in Congress hope to convince Trump to support an untested strategy of using the tax code to promote exports while slashing corporate taxes, framing it as a way to fulfill his campaign promises to restore blue-collar jobs.

The plan would be one way to help Republican lawmakers reconcile their long-standing goal of tax cuts with the often populist campaign rhetoric of Trump, who has attacked the North American Free Trade Agreement (NAFTA) and other trade deals as bad for U.S. workers.

Critics say it risks running afoul of global trade rules and increasing costs for U.S. consumers, and that any export gains could be short-lived if the strategy causes the dollar to strengthen, wiping out any price advantage for U.S. products in international markets.

The export-focused "border adjustability" strategy is part of a larger package of proposals offered in congressional Republicans’ “A Better Way” economic plan from House Speaker Paul Ryan and House tax committee chairman Kevin Brady.

"If we have a border adjustable tax system, that can solve a lot of these trade issues that Trump is talking about," says economic analyst and Trump adviser Stephen Moore.

“You’re going to tax what’s imported and not going to tax what’s exported. So we’re going to reduce the trade deficit and we’re going to have more companies come in here,” Moore says.

The strategy would be implemented by making revenue from sales to non-U.S. residents non-taxable, while preventing importers from deducting the cost of goods bought from non-residents.

Brady says border adjustability would "virtually eliminate" any tax incentive for U.S. companies to move operations overseas and encourage foreign investment to return to the United States.

"We’ve got a great argument, I think,” he said.

Steven Mnuchin, Trump's pick for U.S. Treasury secretary and co-author of the president-elect’s tax plan, described tax reform on Wednesday as “something that happens absolutely within the first 90 days of this presidency.”

Wilbur Ross, Trump's nominee for commerce secretary, says the Trump administration’s aim would be to increase exports in part by getting rid of “non-tariff” barriers.

The perceived winners under a border adjustability approach would include U.S. manufacturers that export heavily, while large-volume importers, such as U.S. retailers, could be hurt. That distinction was already dividing corporate lobbying groups.

While retailers support an overhaul of the tax code, "the tax on imports proposed in the House blueprint is cause for concern for retailers," said Christin Fernandez, spokeswoman for the Washington-based Retail Industry Leaders Association whose members include Wal-Mart, Home Depot and Target.

Some version of border adjustability could attract support from Democrats. Senator Ben Cardin, a Maryland Democrat who sits on the Senate Finance Committee and the panel’s tax subcommittee, said he strongly favors the idea. But he called the emerging House plan "very, very questionable" because it would use tax on corporate income rather than a consumption tax.

Tax lawyers and other experts have said such an approach risks violating long-standing world trade rules that allow countries to adjust their trading positions through indirect taxes, such as a sales tax, but not with direct taxes like the U.S. corporate tax. "It would lead to uncertainty on how it would be treated internationally. And that’s bad for business," says Cardin.

Brady has said border adjustability would be acceptable to the World Trade Organization.

Border adjustability is only one component of the "A Better Way" blueprint. It would also slash the corporate income tax rate to 20 percent from a top rate of 35 percent; repeal the corporate alternative minimum tax; and let businesses write off capital investments immediately.

Altogether, it’s estimated that the House Republicans' corporate tax plan would reduce U.S. corporate tax revenues by about $891 billion over 10 years, perpetuating a long-term decline in the corporate tax take.

Combined with an equally ambitious package of individual income tax cut proposals put forward in the "Better Way" package, the Republican plan could boost the federal deficit by about $3.7 trillion over a decade.

Advocates of border adjustability note that U.S. trading partners including China use value-added taxes (VAT) to favor exports over imports and say the House proposal would level the playing field for U.S. companies.

But some tax experts have questioned how effective it would be, saying that the increased demand abroad for cheaper U.S.-made goods would boost the dollar's value and cancel out gains for exporters.

Still, supporters of the plan believe it could win the favor with Trump, who has railed against U.S. companies that have shifted production abroad and scaled back U.S. operations. Trump has already ruled out U.S. participation in the ambitious Trans-Pacific Partnership (TPP) trade deal and has vowed to renegotiate or quit NAFTA.

"When Trump understands how the blueprint works, particularly the border adjustability provision, which will create a huge incentive to make stuff in the United States, I think he'll be delirious," said Ken Kies, one of Washington's most influential corporate tax lobbyists who represents Microsoft, General Electric, Pfizer and Caterpillar.

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US tax reform hopes become mired in foreign cash piles

The Financial Times  /  August 3, 2017

Lawmakers cannot agree on how to tackle tax on company worldwide earnings

Republican attempts to make progress on tax reform after the party’s failure on healthcare are being undermined by a lack of consensus on handling US companies’ offshore earnings, an issue set to spark fierce lobbying and discord.

The White House and Republican lawmakers want to scrap the US practice of taxing American companies on their worldwide earnings rather than domestic income alone, which is loathed by multinationals and marks the US as an odd one out globally.

But congressional aides and independent experts agree there is no problem-free way to move the US from worldwide to domestic-only taxation, also known as a territorial system. “I don’t think the thinking is well formed at the moment,” said a Republican aide.

The current system has resulted in companies led by Apple and Microsoft stockpiling hundreds of billions of dollars of “locked out” earnings overseas, because America’s 35 per cent corporate tax rate only becomes payable when the income is repatriated.

At the same time, it has inspired other businesses such as Medtronic and Mylan to escape the US tax net by using so-called “inversion” deals to move their tax addresses overseas, drawing scorn from both Republicans and Democrats.

Bemoaning the system of worldwide taxation, an approach abandoned by most of the US’s biggest trading partners over the past 30 years, the tax chief of one big US manufacturer said: “We would take any other country’s system over the US.”

While the White House, Senate and House of Representatives are yearning to notch up a big legislative achievement — and see tax as their best hope — the most concrete part of a joint tax announcement made last week was a step backwards on ending worldwide taxation.

Policymakers said they were ditching a plan for a border adjusted tax, which would have created a quasi-territorial system by imposing a tax on imports to the US while exempting exports.

For Republicans, offshore earnings need to be tackled in three steps.

First, they need to work out how to treat companies’ existing offshore earnings. Second, they must decide how to exempt future foreign earnings. Third, they need to ensure an end to taxing foreign earnings does not trigger a new surge of tax avoidance to other countries.

“You are going to have cheerleaders and opponents no matter what path you pick,” says the Republican aide.

Apple revealed this week that its offshore stash of cash and marketable securities had grown to $246bn. The next largest in 2016 was Microsoft’s $116bn, followed by Cisco with $62bn and Google parent Alphabet with $52bn, according to the rating agency Moody’s.

Jim Carter, who was head of tax for the Trump administration’s transition team, says it was a “foregone conclusion” that the earnings would be subject to some form of mandatory one-off tax. The Trump campaign tax plan proposed a levy of 10 per cent, a generous giveaway in the eyes of Democrats given the standard 35 per cent rate.

One fight with companies will be over whether there is a single blanket rate, or a “bifurcated” rate, with a higher tax on cash and a lower tax on earnings that have been invested in M&A deals or facilities.

The tax chief at the manufacturer, which has reinvested a big chunk of its overseas earnings, said: “We don’t have the option of just saying we’ll write you a cheque. We don’t want to be forced into a situation where we actually have to sell assets.”

On future foreign earnings, eliminating US taxation is less simple than it sounds. “It is not clear that a ‘perfect’ or pure territorial tax system exists,” said the Tax Foundation, a think-tank, in a report this week.

France, Germany and Japan exempt only 95 per cent of foreign income from taxation, not the 100 per cent exempted by the UK and Australia. How to measure that percentage is another potential source of disagreement.

Mr Carter said: “I’d imagine in negotiations on the Hill Democrats would want something less than 100 per cent, but there would need to be trade-offs and compromises.”

It remains to be seen, however, whether Republicans will try to make a tax deal with Democrats or go it alone.

Worries about a move to domestic-only taxation backfiring are real. The fear is that if policymakers cannot lower the headline US corporate rate enough to satisfy executives, a territorial system would give them more incentive than ever to shift US profits overseas as a means of tax avoidance.

One anti-avoidance idea is a so-called minimum tax on foreign income, which was at one point advocated by the Obama administration. Sullying the purity of a territorial system, it would require companies to pay US tax immediately on foreign earnings if they had not already been taxed up to a certain level by foreign tax collectors. The Obama era threshold was 19 per cent.

Another alternative would focus on the use of intellectual property in tax avoidance — common in the technology and pharmaceuticals sectors — by imposing a tax on foreign income derived from IP. This was proposed in 2014 by Dave Camp, the then Republican chairman of the tax-writing House ways and means committee, but it prompted an outcry from business.

The Republican aide said: “What is not yet fully in bloom is the political opposition we will face to whatever the committees come out with.”

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